The files have to be in the same folder as the file you're patching. Alternatively, just put xdelta3.exe in your system folder and keep it there for future use. Or put it wherever you want and include full path in the .bat file.

If, by any chance, you want to create an xdelta, you need a command line like this:

xdelta3 -s "episode01.mkv" "episode01v2.mkv" episode01v2.xdelta

(Quotation marks only really needed for whatever has spaces in it.)

How to Use xdelta Files without Needing .bat Files

If you want to make things easier and patch files just by double-clicking the xdelta file, you need to edit the registry.